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Holt Medical Corporation manufactures two models of a medical device: Model 101 and Model 102. Below is the current year production data for the...

Holt Medical Corporation manufactures two models of a medical device: Model 101 and Model 102.

Below is the current year production data for the company:


Model 101
Model 102
Direct material in units
97,000
113,000
Direct labor hours
30,000
40,000
Machine hours
26,000
13,000
Number of setups
300
600
Number of devices produced
16,000
8,000

The 210,000 units of material had a total cost of $1,365,000. Direct labor is $17 per hour.
The company has total overhead production costs of $1,850,000.

a. If Holt Medical Corporation applies factory overhead using direct labor hours, compute the total production cost and the unit cost for each model

b. If Holt Medical Corporation applies factory overhead using machine hours, compute the total production cost and the unit cost for each model.

c. Assume that Holt Medical Corporation has established the following activity centers, costs drivers, and costs to apply factory overhead.

Cost Pool
Cost Driver
Cost
Volume
Equipment Maintenance # of machine hours
$585,000
39,000
Production Setup # of setups
$125,000
900
Material Handling Units of Materials
$540,000
210,000
Transportation Costs # of devices produced
$600,000
24,000

Compute the total cost and the unit cost for each model.

d. Explain why the unit cost for each model is different across the three methods of overhead application. How can such information benefit an organization?

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